Fashola and his Home Ownership Mortgage Scheme

..it is rather disconcerting that Lagos State government does not seem to understand the solution to the problem of rental housing deficit in Lagos State. I say this, because how else can you explain the sheer misalignment of the solution being proposed by LASG.

Victor Olapojoye

To say that one is impressed with the giant strides Lagos State has achieved under the administration of Governor Babatunde Fashola, is stating the obvious. Most Nigerians have seen the good work done by his administration to better the life of Lagosians. To the extent that Governors of other states are actually coming to Lagos, to learn how BRF did it and hoping they can replicate some of the successful programs in their own states.

One of such laudable accomplishment was the recent enactment of the Lagos Tenancy Law. In a nutshell, the law hopes to achieve two things – Make rental housing more affordable for Lagosians, by outlawing the practice where building owners require prospective tenants to pay multi-year rent upfront, sometimes requesting up to three years advance payment. The other objective is to punish erring building owners and tenants. While this step in itself is laudable, it will, in my opinion, go the way of other similar laws enacted by past administrations in Lagos State. The reason is very simple. Private building owners enjoy an absolute monopoly in the rental housing market in Lagos State in particular, and Nigeria in general. This is already evident in the reaction of building owners in Lagos to the law. Some of them are quoted as telling prospective tenants, who remind them of the existence of the law, to go and rent Fashola’s house, if they don’t want to pay two-year rent. And there goes the question. How many rental housing has the government of Lagos built or supported its construction in the last 20 years? I am not talking about low cost housing sold to people, who then turn them into rental properties. The answer is a resounding NONE, NADA, ZILCH! How many building owners will Lagos State prosecute? How many prospective tenants, who are more interested in putting a roof over their families, will go and report an erring owner. Even if they report, what is the alternative? Move on to the next shylock building owner? The law even goes further to demonize the victims (tenants) by stipulating punishment for paying multi-year rent to a building owner. I don’t think it is wise to demonize the very people the law was enacted to protect.

Without real competition between private and public investment in rental housing, the tenancy law will be unenforceable. To create competition in the rental housing space, States and Cities in developed countries have established Housing Development Authorities. For instance, in the State of Illinois where I live, there is the Illinois Housing Development Authority (IHDA), while the City of Chicago has the Chicago Housing Authority (CHA). Both of these agencies are primarily established to ensure that there is affordable rental housing for the people of the State and City. They achieve their objectives either by providing or guaranteeing concessionary mortgage financing to private developers to build affordable rental housing for the people.

From the above, any discerning mind will understand what needs to be done. However, it is rather disconcerting that Lagos State government does not seem to understand the solution to the problem of rental housing deficit in Lagos State. I say this, because how else can you explain the sheer misalignment of the solution being proposed by LASG. The LASG recently launched a Home Ownership Mortgage Scheme. According to the LASG, the scheme is the solution to high cost of rental housing in Lagos. Are you kidding me? The solution to rental housing paucity is to establish a home ownership scheme? It is like saying the solution to the exorbitant fares charged by private transportation owners, is to set up a car ownership scheme that will make everybody a car owner. It sure does not make sense, and it is obvious that LASG does not seem to understand that there are two distinct markets for rental housing and home ownership. It is not everybody that will own a home, but that should not preclude them from having access to decent and affordable rental housing.

What is the solution? To start with, enforcement of the tenancy law should start with the Low Cost Housing Estates where housing units built with Lagos State money were sold to private individuals who have, through the years, turned them into rental units and are collecting multi-year rent from tenants.

The next part of the solution is for LASG to ensure there is competition in the rental housing market. This can be achieved be either directly financing rental housing projects all over Lagos State or working out PPP arrangements with private developers to design, build and finance rental housing projects. This must, however, come with specific milestones. For instance, one of the goals could be, having in place 2 million rental housing units in Lagos by 2015. Announcing this goal alone will make current private building owners understand that the people of Lagos will soon have a more affordable and more decent rental housing alternative, and as with all human beings, they (building owners) will fall in line. This is because, Lagosians will be able to, not only own, but also rent houses that Fashola helped build.

This solution can be wrapped into the Lagos Home Ownership Scheme by providing Rental Housing Developer financing guarantees to private developers in the rental housing space through the scheme. This will enable private developers, who are committed both morally and legally to abiding by the provisions of the Lagos Tenancy Law, access financing at concessionary rates to develop rental housing projects. The FMBN model is a good starting point. Other considerations will be cost-effectiveness and timely delivery.

Cities and States all over the world are looking for more cost-effective ways of delivering rental housing. It becomes even more important in Nigeria’s case where our addiction to cement has essentially insanely driven its price up, such that a ton of cement that is priced at N9000 in China, is priced at N44,000 in Nigeria! To achieve cost effectiveness, most cities and states all over the world including Africa, are moving towards modular building technology. By using modular technology, housing projects can achieve more 40% reduction in cost, when compared with the cost of conventional building methods that require enormous use of cement and extended onsite construction. Because the modules are built in a factory, there is less wastage. There is also opportunity to enjoy economies of scale, because modular housing plants buy materials by the metric tons. Finally, cement use will be reduced by over 70%, there by taking out the single biggest construction cost driver in Nigeria.

In terms of timely delivery, modular technology is a win-win for both developers and financiers. Because modular buildings are delivered in months and not in years, developers have a shorter waiting time before their assets start generating revenue. This puts them in a better position to start repaying their loans quickly. Modular technology lowers the longer term risk borne by financiers. This is because a sustainable repayment plan based on revenue from the asset which essentially eliminates the need for long loan deferment periods can be put in place. Also, because the housing units are the ultimate collateral for the loan, the quicker they are completed, the better it is for the financiers.

Recently, a group of Nigerian investors from the US presented a proposal to build a $2m Modular Housing Plant in Abuja. The Plant was expected to manufacture up to One Thousand Five hundred (1500) 30-Unit Rental Apartment Buildings (45,000 units) annually. I was later informed that the person they spoke with at the Federal Capital Development Authority (FCDA) requested N5m in bribe payment or 10 of the rental units before looking into their proposal. Needless to say, the guys pulled out of the deal. One of them told me that there is no reason why he should bribe someone to make life better for Abuja residents. So, Lagos State Government, I have suggested a solution, the ball is now in your court.

olapojoye@gmail.com

About the author

Victor Olapojoye

Victor is a consultant and adviser in areas of social, health, and economic development. He is keen to support projects aimed at national development, and shares the vision of Openmind Foundation.

Victor, your article is a timely delivered free consultancy to Governor Fashola and the Lagos State Government. I hope they make use it. The plight of tenants in Lagos, particularly non-indigenes, is heartbreaking. It is a big relief to read that the government has finally recognised this issue. There are a number of important points your article highlights. First is your acknowledgement of the giant strides Lagos State has made under the governorship of Mr Fashola. By the standards of governance across Nigerian states, Governor Fashola’s accomplishments are Nobel-price worthy novelty. I admire him for daring to be different in a country where acting in national interest is as rare as moon rock. However, to deserve an Oscar or Nobel price, the governor’s novelty in Lagos must be evaluated against two benchmark norms – cost and quality.

Let me address the issue of quality first. At this stage in our history of development, anything worth doing is worth doing efficiently, effectively and of international standard. There should be no “Ajegunle” versus Victoria Island standard as opposed to South African or European standards; allowing of course for geographic, climatic and cultural variations. This applies to roads, housing, city gardens, libraries, university / school infrastructures, hospitals, transportation systems, etc. Another litmus test on quality is whether government officials like Governor Fashola and their family members make use of the innovations on offer to the general public. For example, if the hospitals, public transport systems, schools and universities, botanical gardens, etc. are of quality standards, relations of ministers and governors should be seen patronising the services on offer. Nigeria is many years behind in developmental terms. It is not in our national interest to experiment with second best. In a highly corrupt country like Nigeria, project costs are major burden to the tax payers. It is important that the costs of the Lagos State innovative governance be assessed and made public. So while Governor Fashola is to be applauded for his remarkable efforts in Lagos State, the issue of quality and cost should never be ignored.

On dealing with the housing issue in Lagos, your suggestions on the way forward are spot-on and professional. I must also draw attention to the importance of ensuring that the housing scheme does not create new pockets of Ghettos all over Lagos. The schemes, home ownership and tenancy, as you rightly advised, should in addition to solving housing problems in Lagos, provide a spring board for city/town development. Therefore good roads, quality housing designs, provision for present and future technologies, shopping facilities, schools, etc are not negotiable. Some of the costs can be passed on to owners/tenants. Modern housing estates are similar to any other technology. Our citizens must be trained to look after them for durability, enhanced market value, safety and comfort. The maintenance culture in Nigeria is abysmal. The Lagos State Government must invest in communicating the importance of maintenance to tenants and landlords. They should infact invest in free training on basic maintenance skills.

Anonymous

An interesting writeup I must say. I have done a little research around this housing scheme since reading the article. The conditions attached to the scheme while well meaning, opens the scheme to fraud, corrupt practices and other forms of abuse if not carefully policed. The terms of the scheme include:

1. Priority is given to civil servants in Lagos State ministries and parastatals irrespective of state or tribe of origin. I guess the assumption here is that employment within the Lagos State civil service operates on equal opportunity terms. If so, the scheme stands to benefit Nigerian citizens of Lagos state residence.

2. Applicants must be less than 60 years old, first time buyers with verifiable source of income and in employment for at least the past six months. With poor record of birth and death in Nigeria, verifying some data might be problematic and end up opening doors to corrupt practices.

3. Applicants will deposit 30% of the value of the property they intend to purchase. This is likely to limit the scheme within the reach of the wealthy and the corrupt, unless the source of the deposit can be investigated. 30% is also quite high for a normal civil servant whom this scheme is design to help. Perhaps, the employers may assist through salary advance for that purpose.

4. House purchased under the scheme cannot be rented out or transferred. This will require some creativity and sophisticated system to police effectively.

5. Proof of affordability including 6 months’ payslip and salary account statement for the past year. This condition is in conflict with item two above which states that anyone who has worked for six months is eligible. For the self-employed, 3 years audited accounts and business account statement are required.

Even where the terms of the scheme are strictly and judiciously observed, the scheme will come no where near making any considerable mark on the housing problems facing Lagosians. As pointed out by Victor, home ownership scheme alone cannot solve housing crisis. Governor Fashola needs to tackle the problem from two or more angles as suggested by Victor. I am pleased with Governor Fashola’s acknowledgement of the housing problem in Lagos in addition to his attempt at tackling it.

The other issue that demands a creative approach is how to enforce outlawing the practice where building owners require prospective tenants to pay multi-year rent upfront. And to that without penalising the tenants. In a normal country with effective judicial system and law enforcement officers, this will not be an issue. Many Lagosians are so poor that they avoid the police, lawyers and the court at all costs. If the Lagos State government is serious about combating upfront payment practice, it will have to come up with a robust way of enforcing the law. One way might be to organise a team of lawyers to act on “No win, No Fee basis” on behalf of tenants who decide to take on their Landlords. The court too and the law enforcement agents will have to act swiftly in such cases. The governor has to lend his weight behind tenants for them to dare take on the Landlords. I am hoping and praying for a better Nigeria and a day when every citizen will enjoy his/her rights without sweating or paying a price for it.

Dolapo Owolabi

Dear Victor, an absolutely brilliant write-up and the part that gets my attention is “It is not everybody that will own a home, but that should not preclude
them from having access to decent and affordable rental housing.”

I had not given much thought to the two very distinct principles of home ownership and tenancy as regards the HOMS of the Lagos State Government.

However, I believe the scheme (in this initial stage) is targeted at those who have already started planning towards their home ownership.

I believe the state to be in consultation with specialist and are only exploring a more viable option first, which is ownership. It is hoped that the solution you are proffering will follow in due course.